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Its identify might sound sizzling, however a newly filed New York IPO plan from the China-related SolarMax Expertise, Inc. (SMXT) tells fairly a distinct story.
That’s our total evaluation of the upcoming itemizing by an organization whose IPO prospectus filed final week exhibits it’s sorely in want of a lesson within the significance of diversifying its income sources. Aside from its place as a small participant within the sizzling solar energy sector, the opposite noteworthy factor about this IPO is that it’s one of many few by a China-related firm in New York recently.
Such listings got here to a near-standstill a couple of yr in the past after the disastrous IPO for the Uber-like DiDi International (OTCPK:DIDIY), which managed to upset regulators in each the U.S. and China. Many – although not all – of the problems that put the brakes on most choices after DiDi have been resolved now, together with final week’s closing of a cybersecurity evaluate in opposition to DiDi that ends in a file superb of 8 billion yuan ($1.2 billion) in opposition to the corporate.
With that problem within the rear-view mirror, it’s fairly attainable that the SolarMax IPO might sign the resumption of extra Chinese language choices within the months forward, together with some doubtlessly bigger ones.
With regard to measurement, SolarMax’s IPO is comparatively modest, aiming to boost about $30 million by promoting 7.5 million shares for $4 apiece, the prospectus exhibits. In truth, this isn’t the primary time SolarMax has sought such an inventory. It initially filed for a New York IPO in December 2018. But it surely withdrew the appliance in October 2020, saying at the moment it determined to make a backdoor itemizing utilizing a particular function acquisition firm (SPAC) as an alternative. That SPAC deal apparently by no means occurred, which is why the corporate is coming again to market now with the most recent IPO plan.
Fact be instructed, there’s not an excessive amount of to get enthusiastic about with the corporate in its present type. But it surely does appear to have a strong sufficient basis in its core areas of constructing industrial-scale photo voltaic farms in China and rooftop-style solar energy era tasks for each residential and business purchasers within the U.S. Thus, if it might use its base and experience to search out extra prospects for one or each companies, the corporate might have some room for important development.
There’s actually no scarcity of alternatives in both enterprise space. China and most western nations are aggressively constructing new photo voltaic farms to wean themselves off dirtier, carbon-emitting vitality powered by coal and pure fuel. That drive has gained urgency in current months with Russia’s invasion of Ukraine, which has led most western nations to speed up their new photo voltaic venture constructing to eradicate their reliance on Russian oil.
Now SolarMax simply must faucet into a few of that demand.
Skinny consumer roster
SolarMax is definitely a U.S. firm, based mostly within the state of Nevada. It has two models, one within the U.S. constructing onsite rooftop-style photo voltaic techniques for residential prospects and business purchasers like factories and workplace buildings. The opposite unit is in China, constructing industrial-scale photo voltaic farms.
The China operation was the corporate’s massive breadwinner till not too long ago, offering greater than 70% of its $131.6 million income for 2020. However then the corporate’s China-based income plunged to only $7.8 million final yr from $94 million in 2020. In consequence, its total income additionally plunged 71% in 2021 year-on-year.
The explanation for the plunge is kind of straightforward to determine and owes to SolarMax’s reliance on a single buyer in China, a state-owned firm referred to as State Energy Funding Corp. Guizhou Jinyuan Weining Vitality Co. Ltd. (SPIC). SolarMax was constructing 4 tasks for the consumer during the last two years and completed the work in 2021. In consequence, its China-based income fell to zero within the first three months of this yr. What’s extra, there’s no indication in its prospectus that it has any new work coming from SPIC, or another China purchasers, within the close to future.
SolarMax’s U.S. enterprise is a little more secure, although its income additionally dropped to $27.3 million final yr from $28.8 million in 2020. However right here once more, the corporate factors out that each one of its U.S. enterprise of putting in rooftop-style photo voltaic techniques relies within the state of California, as soon as extra underscoring its lack of range.
The underside line is that SolarMax incurred unfavourable money movement in 2020 and 2021, in addition to $2 million in unfavourable money movement from its operations within the first three months of this yr. It added that its monetary statements for the final two years have included language indicating it might face a money crunch that might halt its operations at any time.
Its money place appears to be like just a little unsure in the meanwhile, although not at disaster stage simply but. SolarMax had about $5 million in money on the finish of March, although that might rise to greater than $30 million if it could actually full its IPO. It made no point out of short-term debt within the prospectus, although it had about $45 million in long-term debt.
The prospectus stated the corporate intends to make use of proceeds from the IPO for basic company functions, most definitely to fund its money-losing operations that included a $1.3 million web loss within the first three months of this yr. But it surely’s attainable the corporate might additionally use among the new funds for an additional acquisition that might assist it diversify in both the U.S., China, or each.
In valuation phrases, SolarMax could be valued at about $190 million if it could actually full the IPO based mostly on the phrases in its prospectus. That may give it a price-to-sales (P/S) ratio of about 0.6 based mostly on its 2020 income, although the determine drops to only 0.2 based mostly on the 2021 income determine. Comparable photo voltaic farm-building specialist ReneSola (SOL) trades at a far larger P/S ratio of 5.7, displaying simply how modest SolarMax is pricing its providing.
Such modesty is basically applicable on this case, and even at this comparatively low stage, the corporate might have problem attracting traders to its shares.
Disclosure: None
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Editor’s Word: The abstract bullets for this text have been chosen by In search of Alpha editors.
